I am looking for advice on whether of not a company is dormant.
The company has been dormant for a number of years, however it has significant losses, which via a tax election a I am looking at utilising to mitigate gains on the sale of shares. The shares are owned by a group company and were in an unrelated company.
Due to being dormant the company has not been audited in recent years, however what I am looking to determine is whether or not the tax election will result in an audit being required due to the company no longer being dormant.
I am aware the a company is dormant if it does not have any significant accounting transactions, but am unsure as to whether a tax election is classed as a significant accounting transaction or not?
Any help would be much appreciated.
Replies (14)
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No a tax election is not an accounting transaction. Which accounts in the company's books would you debit and credit, and with how much, if it was?
I'm sure someone could find the missing reference if they had a spare hour.
But do you have a reason why old (presumably trading ) losses can be used against current gains more importantly?
If only there was a definition
presumably trading losses
I expect the tax election referred to is under TCGA 1992, section 171A, which would make your presumption incorrect.
All we need is a definition of significant accounting transaction and the mystery would be solved. http://www.legislation.gov.uk/ukpga/2006/46/section/1169?view=plain
EDIT: Crossed with taxguru, who clearly is not familiar with CA 2006, section 480.
Nonsense
EDIT: Crossed with taxguru, who clearly is not familiar with CA 2006, section 480.
Another piece of nonsense. How s.480 is relevant to the OP?
Why does it matter whether the company is dormant or not?
If it's the audit issue, why not ask the group auditors? It's their decision at the end of the day isn't it?
A company is dormant during any period in which it has no significant accounting transaction (s.1169 CA/06). A “significant accounting transaction” means a transaction that is required by section 386 to be entered in the company's accounting records. S.386 requires accounting records to disclose with reasonable accuracy, at any time, the financial position of the company. If, by virtue of this election, therefore, the position of the assets and liabilities of the company is affected then I would not consider the company to be dormant.
Edit: I have no clue what's the audit connection here!
Audit
Edit: I have no clue what's the audit connection here!
The issue is that subsidiaries of holding companies that are not exempt from audit are themselves also not exempt from audit unless they are dormant.
Great!
The issue is that subsidiaries of holding companies that are not exempt from audit are themselves also not exempt from audit unless they are dormant.
Thank you for interpreting so much out of the OP! But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.
Great!
Thank you for interpreting so much out of the OP! But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.
But people can go around boldly declaring things as irrelevant nonsense without the same information?
Audit
But we don't know the exact reason why an audit is required, even in the case of a subsidiary that's not dormant.
Is it not likely to be the Companies Act?!
Contrarian view to taxguru
If the transaction you are talking about does not affect the assets of the company i do not think it is a transaction which affects the financial records of the company and it would remain dormant.
All the company is doing is utilising a contingent asset (carried forward loss) in a company which is otherwise unable to use it. I assume that this contingent asset is not recognised as a deferred asset. Yes? Also ensure there is no payment for the transfer. And then it will not affect the records of the company.
This is just an election for tax which is not affecting the assets of the company only its contingent assts which are not covered by this section of the CA.
Not sure if the audit reference is a red herring. It sounds like it.
Even if it does need an audit, if there are no transactions and the only issue is that there is a loss offset election - then a better question is what is the reason not to show the auditor the one (for want of a better phrase) 'transaction'?
Are you worried that the allocation of the losses may be questioned? After all, that's the only 'event' in the year.
What are the assets that the business holds? How much tax is at stake on the disposal? What is the likely audit fee? Are there other issues that might come out of an audit?
Then either do the election or don't.